No-Moat Macy’s Bolsters Its Liquidity
Macy’s e-commerce jumped 80% in May, and its new curbside pickup service is attracting shoppers.
On June 9, no-moat (MACY's) provided more information on its results for 2020’s first quarter, scheduled to be announced on July 1. The firm had previously (on May 21) released ranges for sales ($3.00 billion-$3.03 billion) and operating income (loss of $905 million-$1.11 billion), and has sharpened these to net sales of $3.02 billion (a decline of 45%), an operating loss of $969 million, and an adjusted EPS loss of $2.03. In March, we had forecast a sales decline of 37%, an operating loss of $445 million, and an adjusted EPS loss of $1.21. Macy’s preliminary results include a roughly $300 million inventory write-down but do not include expected material noncash charges related to goodwill and store impairments. Separately, the firm recently raised $4.5 billion in new financing, consisting of $1.3 billion in 8.375% senior secured notes (mature in 2025) and a $3.15 billion asset-backed credit agreement (matures in 2024). Macy’s closed the quarter with $1.5 billion in cash.
Along with the preliminary results and financing, Macy’s announced that about 450 of its stores had reopened by June 1 and that they have been outperforming its original expectations. While Macy’s had anticipated initial sales declines for reopened stores of 80% or more, actual declines have been around 50%. Meanwhile, Macy’s e-commerce jumped 80% in May and its new curbside pickup service is attracting shoppers. Initially, Macy’s shares moved up on this news but then reversed and dropped by a high-single-digit percentage, likely due to remarks by CEO Jeff Gennette that suggested that sales may not reach normal levels until 2021 or 2022. As mentioned in our note of May 21, we expect to reduce our per share fair value estimate of $17.60 by a high-single-digit percentage after full first-quarter results are announced, but view Macy’s as attractive. While the firm will close underperforming stores, we forecast it will return to profitability next year after fallout from the pandemic has subsided.
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David Swartz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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